Northern Oil & Gas (And Friends) Punch Back

By Dave Kansas

After last week’s bear raid, Northern Oil & Gas has come out with an upbeat performance update and backers have made their counter-case.

NOG, which has become a darling of North Dakota Bakken oil field groupies, is up 3.3% today to 27.06. It remains below its recent closing high of 32.69 March 4.

Last week, we pointed out how some stories from The Street Sweeper and Bronte Capital Management blogs had raised questions about NOG’s accounting practices and overall business prospects. The stock, which has a large short following, got knocked around a bit in the wake of the stories.

But in the wake of last week’s events, a number of folks have come to the barricades for NOG.

Here’s the latest:

SunTrust Robinson Humphrey (Buy, Price Target 40). Headline: Strong Operations Update Makes Us Pound the Table Even Harder. “The company is participating in 141 gross (14.17 net) wells that are drilling, awaiting completion, or being completed currently. As a result, Northern has boosted its activity level for 2011 from 35 net wells to 40 net wells…The stocks recent decline is due to other factors, not fundamentals, providing an opportunity for investors.” (MarketBeat note: SunTrust has done underwriting for Northern Oil & Gas.)

Northland Securities (Outperform, Price Target 37). Headline: NOG Increases Guidance for 2011, On Track to Over-Deliver in 2011. “NOG continues to add acreage at a pace that meets or exceeds its goal of 200 net acres a day at reasonable prices…We continue to remain cautious on 1Q2011 production despite management comments that it believes it will be able to grow production 30% quarter-on-quarter. Our caution relates mostly to severe weather in January and February in North Dakota that slowed operations.” (MarketBeat note: SunTrust has done underwriting for Northern Oil & Gas.)

Comments (5 of 9)

Depletion rates are the biggest D in the DD&A line. They are a non cash expense that shows up each and every quarter in the income statement. That was addressed in my first article and they are not at all out of line with their peers in the Williston Basin.

Since the first piece came out, Streetsweeper, Bronte and others have dropped more flashy articles that again fail to land any really blows but are highly linked to facebook and pictures of hunting expeditions, pages that are laced with a combination of sarcasm, innuendo, and in some cases glaring inaccuracies. I would note that some members of the mainstream press apparently are willing to use as the basis of their stories the comments of shorts while excluding comments by longs and I was encouraged to see Mr. Kansas include my first piece at the end of this article. Here is another:

Am I missing something or is 25x sales a little bit much for this or any stock for that matter.

5:16 pm April 5, 2011

horn wrote :

So, what are the depletion rates and why does NOG refuse to release them? How can you possible analyze this name as a bull without knowing?

6:53 pm April 1, 2011

JJ wrote :

All I know is that any type of accounting irregularities can be the kiss of death.

2:58 pm March 30, 2011

CPA wrote :

Message to Birge Miller and others...
As a CPA with two-and-half decades of public accounting experience (C&L, PWC, and now Regional), I am coming to the defense of NOG's CFO and their auditors. What this company has done is incredibly impressive, specifically in 2010 with Mr. Winters at the CFO position. The quality of their SEC filings is on par with all the major oil and gas companies. I have poured through the most recent 10-K and I see nothing out of line or unusual given the company's ops.

You really can't raise the money that NOG did during 2010 if your CFO is not highly competent. The investment bankers and attorneys would sniff that out in less than a minute. For this same reason, you have to give the auditors their credit. The auditing firm is intimately involved in public offerings. The auditors actually do most of the due diligence over the numbers. Again, if the auditors couldn't hack it, the investment bankers and underwriters would sniff this out in a New York minute.

The most unfair misconception in the accounting world is that a non-big four firm is, by default, not competent or capable. Also, as pointed out in Zman's article, the auditor is part of the "Alliance" of BDO Seidman. That means you're still an autonomous firm but you have all the BDO resources and support. Funny how both Streetsweeper and Hempton just happened to leave out the auditor's BDO connection. Doesn't help their short, I suppose. Just like SS insinuating that the CFO is uneducated. Now that the we've learned he has a masters degree, I'm sure the SS will correct her story post haste. Perhaps its time we disallow short selling. I've never liked the idea of betting on someone to lose.

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